Until 2025, the aviation sector received free allowances under the EU Emissions Trading System (EU ETS). Free allocation was originally introduced to protect the competitiveness of European airlines and address concerns about carbon leakage. From 2026 onwards, aviation no longer receives free allowances.
In this study, we assess how free allocation has affected airline profitability and sustainable expenditure. We also analyse its impact on public funding available for decarbonisation and on the extent to which aviation’s external climate costs are internalised. The analysis covers the period 2013-2025 and includes an in-depth assessment of six major European airline groups: Ryanair, Lufthansa, Air France-KLM, easyJet, Wizz Air and IAG.
Between 2013 and 2025, airlines received free allowances with an estimated value of €10.9 billion. Free allocation most likely primarily increased airline profits. Based on economic theory, we do not expect the allocation method — free allocation rather than auctioning — to have had a substantial effect on ticket prices or demand for air travel. Furthermore, there is no indication that the recent phase-out of free allowances has materially undermined the profitability or investment capacity of European airlines.
At the same time, free allocation reduced the auction revenues available to governments and EU funds. The airlines analysed spent approximately €1 billion on sustainability over the period studied. We find no strong reason to expect that these expenditures would have been substantially lower without free allocation. EU ETS auction revenues, on the other hand, are largely used for climate and energy transition purposes. Full auctioning of aviation allowances would therefore most likely have made significantly more funding available for the decarbonisation of the European economy.
The study also finds that aviation’s external climate costs remain only partly internalised. For the six airline groups analysed, external climate costs amounted to almost €30 billion in 2025. Since 2022, around 40% of the external costs of direct CO₂ emissions within the EU ETS scope have been internalised. Without free allocation, this would have reached approximately 50-70% in 2022-2025. The rate is substantially lower when intercontinental aviation and non-CO₂ climate effects are also taken into account.
The study concludes that the aviation sector is able to absorb the phase-out of free allocation, while auctioning increases the public funding available for decarbonisation.
This study was commissioned by Opportunity Green.